To say that the insurance industry is rife with industry jargon is an understatement. That’s why Insurance Business searched the websites of several reputable industry bodies, searching their glossaries for the most common insurance terms that insurance professionals and consumers should know.
Here, we provide the meanings of common industry buzzwords to help consumers gain a proper understanding of how different insurance policies work. This can help them find the coverage that best suits their needs. Agents and brokers are encouraged to share this article with their clients to help them navigate these complexities.
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The insurance terms below are divided into these categories:
General terms – for buzzwords that apply to all insurance policies
Auto insurance terms – for terms that apply exclusively to car insurance
Health insurance terms – for accident and health insurance industry buzzwords
Home insurance terms – for terms often used in property insurance, like homeowners' insurance, landlord insurance, and renters’ policies
Life insurance terms – for jargon commonly found in life insurance policies
Liability insurance terms – for terms related to insurance for various activities, including owning a vehicle, operating a business, or practicing certain professions
Cyber insurance terms – for terms related to insurance that protects against cybersecurity threats like data breaches and cyberattacks
Commercial insurance terms – also called business insurance, these are terms related to insurance intended to provide financial protection for businesses against various risks
This term refers to the maximum total amount that an insurer will pay for all claims within a policy period.
Also referred to as open perils, all-risk coverage insures against all types of losses, except for those that are specifically excluded from the policy. This applies to several property and casualty (P&C) categories, including homeowners, auto, and commercial insurance.
This is the cancellation of an insurance policy before the specified end-date. Typically, policyholders get a refund for any unused premiums, although insurers may charge a cancellation fee.
An insurance claim is a formal request filed by the policyholder to their insurer for an amount of money that covers losses or damages. These can include vehicular accidents for auto insurance, storm damage for homeowners’ policies, and emergency surgeries for health insurance plans.
A claimant, meanwhile, is the person who files the claim. In most cases, this is the policyholder.
Find out more about how insurance claims work in this guide.
This is the section of a policy document that explains the duties and responsibilities of the insured (policyholder) and the insurance company. It also states the requirements that need to be met for the coverage to be valid.
This is the date when the insurance policy goes into force. It is also known as the effective date.
This section of the policy document, also called the dec page, summarizes the details of the policy. It contains the coverages, limits, deductibles, and effective date. This page is often located on the front page of the policy.
An insurance deductible is the amount the policyholder agrees to pay out-of-pocket before the insurance company shoulders the cost. Typically, the higher the deductible, the lower the premiums as the insurers bear less financial risk.
A hazard is a situation or condition that raises the likelihood that a loss will occur. Ice on sidewalks, for example, increases the chance of a person slipping and getting injured, while smoking raises the probability of a policyholder getting lung cancer.
This is different from a peril, which is something that causes a loss. This includes fire, theft, collisions, natural disasters, illnesses, and death.
Indemnity is a contractual obligation of the insurer. This means that they are responsible for compensating for the damage or loss incurred by the insured.
This refers to a period when one goes without insurance coverage. If a person, for example, fails to renew their auto insurance policy, then they now have a lapse in coverage.
A loss is the basis for filing an insurance claim. This includes direct and accidental damage the insured or their property sustains. A loss can be partial or total.
The named insured is the person or business named in the policy, also referred to as the policyholder. An insurance policy can have more than one named insured. The named insureds are listed on the declarations page of the policy document.
These are the specific types of losses or damages listed in the policy document. A named perils coverage provides protection against these.
An insurance policy is a written contract between the policyholder and the insurer that lays out the details of the coverage. This includes coverage, exclusions, deductibles, and premiums.
This is the amount charged by an insurance company in return for coverage. There are several factors that impact premiums. These include:
You can learn more about how insurers calculate insurance premiums in this guide.
A rider, sometimes referred to as an endorsement, is an optional coverage that policyholders can add to their policies to cover repair or replacement costs of a property in case of loss. This includes identity theft and water backup coverage for home insurance, and accident forgiveness and roadside assistance for auto insurance policies.
This is the process by which an insurance provider seeks reimbursement from a third party responsible for causing the loss or damage to the property of an insured.
This is the process of evaluating risk then determining the appropriate premium and coverage terms for a client. Those who do the underwriting process are called underwriters. For those interested in this insurance career, you can check out our guide to becoming an insurance underwriter.
This type of policy pays out for the value agreed upon by the policyholder and insurance company when the policy was purchased in the event the vehicle is wrecked beyond repair. This is as opposed to stated value coverage, which reimburses whichever is lower between the stated value and actual cash value at the time of the loss.
Also known as bodily injury liability, this pays for the medical expenses a third party incurs due to an accident caused by the policyholder. The insured pays for premiums on this policy, which also covers legal costs in the event the insured is sued for damages.
This part of an auto insurance policy covers the cost of damages resulting from a collision with another vehicle or object, or the car flipping over.
This is the portion of a car insurance policy that pays out damages not caused by a collision such as fire, vandalism, and natural disasters. It also covers incidents of vehicle theft. Comprehensive car insurance usually covers the replacement cost in vehicle theft cases.
If a car is stolen and unrecoverable (a total loss), the insurer will typically pay the market value of the car at the time of the theft, minus the insured’s deductible.
Also called Med Pay, this is an optional coverage that helps pay for medical expenses that the policyholder and their passengers incur due to a car accident, even if the driver was at-fault.
The MVR details a person’s driving history, including accidents and traffic violations, as reported to a state’s motor department.
PIP is a part of an auto insurance policy that provides coverage for medical and other expenses resulting from a vehicular accident, regardless of who is at-fault. It covers the policyholder, the car’s passengers, and anyone driving the vehicle for injuries sustained from a collision, even those who do not carry insurance.
Also called usage-based insurance or UBI, this works by adopting onboard technology or mobile applications to monitor a policyholder’s driving habits. Telematics then uses the information gathered to reward safe drivers in the form of discounted premiums or, in some instances, penalize risky motorists in the form of surcharges.
Uninsured motorist coverage, also referred to as UM, is designed to provide compensation to policyholders when an at-fault driver does not have liability insurance or illegally leaves the scene of the crash.
Underinsured motorist coverage, or UIM, works almost exactly the same as UM. The only difference is that UIM provides protection when the at-fault driver carries insurance, but their coverage is not enough to pay for all expenses.
Learn more about how car insurance works in the US in this guide.
These are health services provided to policyholders who are not confined to a healthcare institution. Ambulatory services are also referred to as outpatient services.
This type of coverage pays out if the policyholder is confined to an assisted living facility. Some health insurers offer this type of policy as a rider.
These refer to the total expenditures paid out by an insurer for health care services accessed by the policyholder, including medical treatments and hospital bills.
This is the amount that the policyholder must pay during a calendar year before the health insurance company covers the costs.
Coinsurance is the portion of coverage that the policyholder must pay for covered services after the deductible has been paid. Coinsurance rates are often indicated as a percentage. For example, if the insurer pays 80 percent of the claim, the policyholder will shoulder the remaining 20 percent.
This is usually a flat fee that the policyholder pays for certain medical services, with the rest covered by the insurance provider.
This is an organization- or employer-sponsored plan that covers members or employees, as well as their dependents, under a single policy.
Long-term care insurance, also called LTCI, pays out the cost of medical and non-medical services provided for senior-aged individuals who have lost the ability to care for themselves. It covers individuals cared for at home, nursing homes, assisted living facilities, or adult day care centers. You can read all about the differences in long-term care insurance in our guide.
This refers to health services providers who are not part of a health plan’s network. Policyholders have the option to access out-of-network providers, but they generally pay more for their services.
Out-of-pocket maximum
This is the highest amount the insured pays during a year for coverage. This includes coinsurance, copayments, and deductibles, but is on top of the regular premiums. Once the out-of-pocket maximum has been reached, the health insurer will cover all expenses for the rest of the year.
Learn about the different types of health insurance plans and their benefits in this guide.
This pays for the value of the property at the time of the loss, factoring in depreciation. This is as opposed to replacement cost coverage, which is explained below.
This covers the cost incurred if the home becomes uninhabitable due to a covered loss. Coverage is standard in most homeowners’, condo, and renters’ insurance policies, and includes meals and hotel stays. This type of policy is also referred to as loss of use coverage.
Appraisals are often conducted to get an accurate estimate of the cost to rebuild a home, settle claim valuation disputes, and provide sufficient coverage for personal belongings.
This value refers to how much a property will sell in the market.
This type of policy covers the medical expenses of guests who are accidentally injured within a property’s premises, regardless of who is at-fault. Coverage does not include the members of the owner’s household.
This refers to structures within the property’s premises that are not directly attached to the house such as a garage, fence, or shed. Depending on the policy, these may be covered under homeowners’ insurance.
This type of policy covers instances other than bodily injury and property damage. These incidents include:
This covers the cost of repair or replacement of damaged property without factoring in depreciation. This type of coverage applies to the house, also called dwelling, and personal belongings.
This type of rider allows the homeowner to raise the dollar amount of their policy limits to cover for high-value items such as jewelry, artwork, musical instruments, and other collectibles.
This optional coverage pays for damages caused by backed-up drains, clogged sewer lines, and failed sump pumps, as well as mold buildup resulting from these events.
A beneficiary is the person or entity that the policyholder designates to receive the death benefit. This can be the insured’s spouse, immediate family, other relatives, friends, business partners, or even a charitable organization. Policyholders can name several beneficiaries for their life insurance plans and assign how much benefit each person or group will receive.
This type of policy can be converted into permanent insurance without the need for medical assessment. The insurance company is required to renew the policy regardless of the insured’s health status, subject to policy conditions.
This refers to the amount that the insurer pays the beneficiary after the policyholder’s death.
This type of coverage pays out the benefit either at the end of the contract period or upon the policyholder’s death. This is as opposed to standard life insurance policies, which pay the benefit only after the insured's death.
This rider provides long-term care coverage for the policyholder if they become terminally ill.
Permanent policies provide guaranteed lifetime coverage and a cash value element that builds up over time that can be used as collateral if the policyholder decides to borrow.
This refers to the amount the policyholder will receive from the insurer if they decide to exit the policy before it matures. The value is often significantly lower than the actual benefit.
This type of policy pays out a death benefit if the insured dies within a specified period. This means the insured can only access the payment in the years when the plan is active.
Universal life insurance is a type of permanent policy that uses different premium structures to build up savings, with the earnings based on how the market performs.
Whole life insurance is a type of permanent policy where the savings can grow at a guaranteed rate.
Is life insurance worth having? Find out in this guide.
This is a liability policy that covers claims only if they are reported during the duration of the policy period.
These are the expenses related to defending against a claim or a lawsuit. Defense costs are usually covered in addition to the policy limits.
This is a liability insurance policy that covers claims arising from incidents that occur during the policy period, regardless of when the claim is filed.
This pertains to the legal obligation that’s assigned to one party for the actions of another. A good example of this is the employer’s liability for their employee’s actions.
This guide gives you everything you need to know about liability insurance.
This refers to the expenses incurred to investigate, manage, and remedy a data breach. These costs can include legal fees, notifying clients, and credit monitoring.
This term refers to a form of data breach that can be covered by cyber insurance. A BEC is a complex scam that works by targeting companies by tricking employees to transfer sensitive data or large amounts of money via email fraud.
First-party coverage is insurance that covers direct losses suffered by the insured from a cyber incident, like data loss and business interruptions.
Ransomware is another risk that cyber insurance policies can cover. This refers to malicious software that is uploaded into the networks of targeted companies or individuals. Hackers use ransomware to encrypt their victims’ data, effectively holding it hostage. The hacker then demands payment for releasing the data.
This is coverage for legal claims that are brought up by customers, vendors, or other third parties that allege damages due to the insured’s cyber breach.
This is coverage that is intended to cover lost income and operating expenses when a business is temporarily unable to operate due to a covered event.
This is a document that serves as proof of insurance coverage, typically requested by clients or partners.
This is a policy that covers third-party claims for bodily injury, property damage liability, and personal injury that may arise from business activities or operations.
This is the type of commercial insurance that provides protection from claims arising from a professional’s mistakes, negligence, or failure to carry out their duties. Those who sell insurance are among those who use and need E&O insurance.
This is physical damage to tangible property and is often a key coverage element in commercial property or liability insurance.
Are you a small business owner wondering what types of coverage you need? This guide to small business insurance can help.
Considering that insurance is designed to protect a person’s important assets and loved ones, purchasing a policy requires careful planning and research. Knowing the most common insurance terms and their meanings can empower customers to find a policy that best fits their needs.
With everyone speaking the same language, consumers can find the right coverage without the frustration and disappointment.
And if you need to consult an insurance professional to help you make heads or tails of these or any other common insurance terminologies, browse our special section that lists these experts.
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